Iraq Boom Hands Naimi 2013 Oil-Source Challenge

16 Dec 2012

Iraq’s biggest jump in oil production since 1998 is adding the burden on Saudi Arabia to lower down the crude exports to prevent price declines next year.
The kingdom curbed crude output in November to a 13-month low, according to OPEC. Iraq plans next year to pump as much as it did when Saddam Hussein came into power three decades ago, its oil minister said December 9. Supply will also go up in Libya and Nigeria while the U.S. experiences an oil shale bonaza.
Saudi Arabia’s dilemma is that while it is the key OPEC player willing to cut back oil production to maintain prices at desired levels, it is also accommodating Iraq’s growing result and market share, said Julius Walker, global energy markets strategist at UBS Securities LLC in New York. In the end, there will need to be a deal between the two as how to balance out these ambitions.
Saudi Arabian Oil Minister Ali Al-Naimi needs to keep prices high enough in order to fund social spending plans without incurring the rage of consumers for hurting the global economy. Iraq, now the second-biggest provider in the Organization of Petroleum Exporting Countries, has a separate priority: to reconstruct its industry after decades of battle and sanctions.
Arab states are spending billions of dollars on housing and local projects to allay popular turmoil after uprising toppled leaders in Egypt, Libya and Tunisia and sparked a civil battle in Syria. Saudi Arabia has committed more than $600 billion in social and transportation projects in the coming years.
Iraq Surge
Iraq’s production rushed 650,000 barrels a day this year to 3.35 million, the biggest annual gain in 14 years, according to data accumulated by Bloomberg, amidst assistance from foreign oil firms that are paid a fixed amount of money per barrel produced, despite of international price standards.
The Middle East state plans to boost up the output to an average 3.7 mln barrels a day in 2013 and at some point in the year match the 1979 record of 3.8 mln, Oil Minister Abdul Kareem Al-Luaibi told to the media reporters in Vienna on December 9.
The nation has been free of stern OPEC quotas since the year 1998 and the continuation of any allocation is a ‘sovereign issue’ rather than a decision to be made by an organization, Falah al-Amri, the governor of Iraq on the OPEC board, said on Wednesday (12th December).
Brent crude traded as high as $109.48 a barrel today on the ICE Futures Europe exchange. It may sink to $88 by June if OPEC fails to rein back supply, according to Leo Drollas, major economist at the London-based Centre for Global Energy Studies, which was established by former Saudi Oil Minister Sheikh Ahmad Zaki Yamani in 1990.
Iran Sanctions
Saudi Arabia’s task will become tougher should Iran resolve its standoff with the international community over nuclear research and recommence pumping oil at normal rates. Sanctions against the Islamic republic, once OPEC’s second-biggest producer, have cut its exports by 50 percent, according to the International Energy Agency.
While acknowledging its output will exceed client needs in 2013, OPEC refrained from cutting its group target at a meeting in Vienna two days ago, judging costs were high enough for now. Iraq, Iran and Saudi Arabia also failed to agree on the appointment of a new OPEC secretary-general, opting instead to keep Abdalla El-Badri in the role for a further year.
Saudi Arabia slashed its output to 9.67 million barrels a day last month, according to a monthly report from OPEC that cited minor sources for its data. In its own direct communication to OPEC, the kingdom said November production was even lower, at 9.49 million.
Minimum Level
The country can bear crude oil prices falling no lower than about $90 a barrel, according to Jamie Webster, a Singapore-based consultant at PFC Energy.
The CGES guesstimates that Saudi Arabia’s budget-balancing cost is $95 a barrel, more than $10 below current standards. Arab Light, Saudi Arabia’s biggest export grade, was at $107.22 today, according to data compiled by Bloomberg.
National Commercial Bank, the nation’s largest lender by assets, told in a report, which was presented on 27th November that the kingdom’s budgeted oil price for next year is $65.
Demand for the OPEC’s crude will shrink down to 29.7 mln barrels a day in the year 2013, the organization’s secretariat said in a statement at the end of its meeting in Vienna. That is 300,00 barrels a day less than its official target and 1.1 mln a day below November’s actual output, OPEC data illustrate.
Iran Slouch
Iranian oil production, which slumped to 2.65 million barrels a day in October, the lowest level since February 1990, may go up if a new government can come to a deal with western nations, according to JBC Energy GmbH.
The country pumped as much as 6 million barrels a day in the 1970s before the Islamic revolt, which was followed by U.S. sanctions and the 1980-1988 Iraq-Iran War. Iran’s insistence on atomic research guided to a toughening of sanctions this year, which includes a ban by the European Union and reduced insurance cover for supertankers carrying its oil. An Iranian presidential vote is arranged for June.
Libya, reconstructing its oil industry after last year’s uprising against Muammar Qaddafi, plans to lift output to 1.7 million barrels a day next year from about 1.5 million a day this month, Oil Minister Abdulbari Al-Arusi stated in Vienna.
Nigeria, the biggest producer of Africa expects the output to reach normal levels in the first quarter, Oil Minister Diezani Alison-Madueke said after the meeting in Vienna.
Output was hindered in the past months by floods, theft and pipeline leaks that forced quite a few procedures, which includes Exxon Mobil Corp. (XOM), Royal Dutch Shell Plc (RDSA), Total SA (FP) and Eni SpA (ENI), to halt pumping, curbing national production by as much as 500,000 barrels a day.
Outside of OPEC, the U.S. is producing oil at the greatest rate in almost two decades, using horizontal drilling and hydraulic fracturing, to unlock shale resources in North Dakota, Texas and Oklahoma. The nation pumped 6.85 million barrels a day in the week to December 7th, the most since January 1994, and met 83 percent of its energy needs in the first eight months of this year, the Energy Department said.
Al-Naimi, al-Luaibi and other OPEC ministers plan to meet up next on May 31, by which time the group will have a better notion of how economic improvement and supply are affecting 2013 prices.
OPEC has rolled over the whole discussion you required to have about the Iraqis, on how to bring in production, PFC’s Webster said in Vienna. The timing of the discussion is going to be dictated by the market.
Source: [Bloomberg]